A VC’s Take on Equity-for-Service Models
By Jess Schram, Director of Investments and Incubations
It’s been over a year since I joined Remedy Product Studio as Director of Investments and Incubations.
Not only has this role allowed me to develop a newfound understanding and appreciation for the nuances of building tech companies, but it has also given me a fresh perspective on the benefits of multiple funding strategies.
Not every business needs to be venture backed to be successful, but the question of how to finance your company to maximize upside, reduce dilution, and extend runway always remains. For this reason, my shift from traditional VC investing to Remedy’s equity-for-service model has been both interesting and refreshing, to say the least.
I've realized that there is a time and place for VC funding, but there is also a time and place for alternative financing models to supplement. In some cases, that calculation is an "either/or" decision, and in other cases, it is an "and."
The Equity-for-Service Approach
While we did not invent the concept of Equity-for-Service at Remedy, we have certainly perfected it. And as someone who has spent time on both sides of the cap table as a VC investor and startup operator, I believe it is an underrated investment strategy that deserves more attention as a complement to traditional cash financing, particularly for technology companies.
One of the most compelling aspects of the model is its ability to address a common challenge for founders: hiring top talent with minimal impact on runway. Even on face, this task seems contradictory. How can you improve quality without increasing costs?
Equity-for-service, or “sweat equity” models offer a solution to this dilemma. By exchanging a percentage of ownership for work or services, founders can access the expertise they need while preserving cash and aligning incentives with their service provider.
Equity-for-service deals are most commonly structured under a fee/equity split combination. This way, founders benefit from a significant discount without getting overly diluted.
Addressing the Naysayers
Awarding equity to a service provider — particularly an outsourced technical team — is often stigmatized among founders who feel that internal hires inherently add an element of quality and incentive alignment. What those founders neglect to realize, however, is that internal hiring poses its own set of challenges and downsides.
Having experienced outsourcing from both sides of the cap table, I admit, I see where the hesitation stems from. At Remedy, we call it “PTDD,” or Post-Traumatic Dev-shop Disorder. In other words, trauma from a past negative experience working with an outsourced team who had little bias-for-action, no product mindset, and coded your company off a cliff by taking instructions too literally without any thought to your business goals.
Therein lies the double-edged sword.
On the one hand, in-house talent is typically known to be higher quality but more expensive, shortening your runway. On the other hand, outsourced solutions are often cheaper (but riskier) when it comes to delivery.
But what if founders could lower the cost of the work without compromising quality or taking shortcuts? Enter: the Remedy (or solution) to the conundrum.
Benefits of Equity-For-Service Investments
1. Saves Money / Extends Runway
The first and most obvious benefit of equity-for-service structures is that they lower the cost of doing business by allowing your service provider to receive ownership in exchange for work.
These savings can improve your company’s margins, extend runway, and create a more attractive burn multiple, thereby helping your valuation at your next raise.
As investors increasingly look for signals of better cash efficiency and a “path to profitability,” the month-over-month reduction in COGS achieved by an equity-for-service investment can be helpful.
2. Aligns Incentives
Anyone who works for a venture-backed startup — regardless of stage — should be incentivized to see the company succeed. However, traditional agency models don’t deliver on this well. The issue stems from how they hire and how they scope the work to begin with.
The two most common payment structures for outsourced talent are either 1) billable hours using a rate card or 2) deliverable-based compensation (i.e., fixed bids).
A common issue with the former is being wrongly incentivized to bill hours, regardless of need. This could lead to a service provider taking longer than necessary to complete work or prioritizing unnecessary deliverables.
With technology companies, specifically, a combination of buy and build is usually the most effective approach since there are plenty of headless solutions and APIs on the market that can be integrated into custom code instead of building everything from scratch. As a founder, you want your services provider to proactively present these “buy vs. build” options and be biased toward efficiency.
Regarding payment structure #2, a common issue with deliverable-based work, or “fixed bids,” is that startups often pivot or reprioritize as they collect data and learn from having their product in market. In this way, a fixed bid approach may require multiple contract change orders that can delay work or distract from business outcomes due to constant renegotiation based on newly realized priorities.
If your service provider has skin in the game and employs an agile, lean approach like ours, they have a fiduciary responsibility to mind your bottom line and operate as efficiently and strategically as possible. For this reason, we do not scope fixed-bid projects at Remedy.
3. Adds Flexibility
Flexibility is important to consider when building a startup, especially in the early stages.
It doesn’t always make sense to spend time recruiting, hiring, and retaining resources who might become irrelevant in six months. Being able to add or remove team members at the drop of a hat is a luxury that can significantly help you manage spend and extend your runway.
Not to mention, finding a good culture fit for an early-stage team is a time-intensive process (more on this below). If time is money, what happens if the team member doesn’t work out? That hiring process was a big opportunity cost.
Caveat: Never outsource your moat. Beyond a co-founding engineer, CTO, or lead Data Scientist who might build a company’s proprietary algorithm, it doesn’t always make sense to hire full-time technical resources in-house. Remember, most companies will inevitably go through pivots or business model changes in the first few years post-launch, which may require different technical skillsets at different times.
4. Reduces Management Overhead
Managing personnel is an often overlooked responsibility when deciding between hiring internally and outsourcing. Creating career growth plans, monitoring employee burnout, and encouraging retention are all responsibilities founders need to account for when they hire internal team members. And the time commitment to do so is not insignificant.
Hiring internal talent is usually a three- to four-month process that either eats into the productivity of your most senior resources or requires additional cost expenditure for external recruitment agencies.
From a financial perspective, payroll tax and healthcare benefits are additional administrative and operational burdens that contribute to the mental and financial load of management overhead.
Such responsibilities are not required when working with a services provider who takes on all of this for you, which can help you get your product to market faster.
How This Comes to Life at Remedy
Remedy partners with companies to build and scale digital products. We like to say that we sit at the nexus of internal hiring and outsourcing.
We stand up dedicated resources with the long-term mindset, product focus, and high bias-for-action of internal hires, paired with the flexibility, cost savings, and low management overhead of outsourced teams.
How We Invest
As a product studio first, our investment model works best when founders plan to use part of their fundraise toward a product build or expansion of their technical team.
When we’re bullish about a company, Remedy will invest off our balance sheet through an equity-for-service model, described above. Our check sizes range from $50K - $200K into Pre-Seed to Series A businesses.
The equity we receive is commensurate with the dollar amount we invest at the terms the lead sets for the round, just like a traditional cash investment. The only difference is that our investment acts as a service credit for the resources at our studio.
Our investments are designed to cover 20% - 33% of the total project cost, meaningfully reducing monthly burn for founders while aligning incentives with us.
We award our investment in equal chunks over a 6–12 month period (the average length of an SOW) so founders can benefit from a smooth and predictable burn rate over the lifetime of the project and so we can earn our equity over time.
Why We Invest
Remedy has been helping companies build technology products for over 12 years, but we only started investing in 2022. A big reason for this decision was witnessing the success of many of our partner companies as they exited and got acquired after working with us.
After a few instances of missed upside, we decided to put our money where our mouth is. Our thought is that if we can meaningfully de-risk a company from both a product and a financial perspective, the loss we experience from each deal by investing off our balance sheet should be recouped in the form of upside later, which we can re-invest back into the business.
What Sets Us Apart
Remedy’s value is: Product mindset. Industry expertise. Speed to market.
Product mindset — Product is our culture. We don’t just do task-based development. We flesh out and execute product vision. This extends to who we hire, how we interview, how we think, and what you should expect from us.
Most dev shops fractionally contract resources as they need them, which is a poor way to retain top talent. Further exacerbating the problem, low retention compromises knowledge management.
All of our delivery team members are full-time employees who have been trained under our agile methodology and battle-tested with real-life product challenges.
Our rigorous training and recruiting processes ensure we only hire the best talent.
Most of our engineers have worked with us for 3+ years — a higher retention benchmark than most full-time startup employees. This means there is less downside risk of knowledge loss or employee churn when startups work with us vs. other options.
Industry expertise — Every team we staff has vertical-specific product management expertise. The skill level and approach are unlike those of traditional outsourcing.
We have deep expertise in healthcare, fintech, commerce, vertical SaaS, and data tools, where we embed our talent alongside internal teams across software development, data engineering, and DevOps.
Speed to market — We can stand up teams in under 30 days and guarantee they will be fluent in lean and agile principles that will get the job done right the first time.
As your product partner and investor, your business goals are our top priority.
This means you can focus on getting your product to market faster and hitting KPIs that validate your business model, making your company more attractive at your next fundraise.
Wrapping Up
We call ourselves Remedy because we are rewriting the rulebook when it comes to company building.
The equity-for-service model isn’t just an alternative to traditional venture capital. It’s a reimagination of how early-stage founders can build smarter, leaner, and more agile businesses. We’re proving that you don’t have to choose between high-caliber internal hires and outsourced teams with misaligned incentives.
By aligning ourselves with founders as both an investor and a trusted partner, we empower startups to achieve faster product velocity, greater cost efficiency, and increased flexibility. For founders and VCs alike, this approach represents win-win outcomes: better results, extended runway, and lasting value for everyone involved.
If you’re building something exciting or want to talk more about equity-for-service investments at Remedy, please don’t hesitate to reach out! Jess@remedyproduct.com